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What is AP/AR Netting?

Oracle AP/AR Netting allows you to net your Payable invoice balances against your
Receivables invoice balances for those Customers who are also your Suppliers.
For example, If you have a customer who is also your supplier, then rather than him paying
you and then you paying him, AP/AR netting allows you to pay the net difference between
how much you owe the supplier and how much he owes you.
After establishing a netting agreement with such trading partners, you set up the
agreement and the rules associated with it in eBusiness Suite and you can then start to net
AP and AR transactions.
Setups for AP/AR Netting:

Receivables System Options


Netting Bank Account
Netting batch
Approver Chargeable Subcontracting
Netting Agreement
Define and Assign Document sequences

In Detail
Netting Bank Account
Navigation: Payable Manager --> Setup --> Payments --> Bank Accounts
Click on Create button.
Create a Bank Account, which can be used by the netting process. Set the Netting Account
flag to yes.

Enable Default Settlement Account

Assign this bank account to the seeded Receivables receipt class AP/AR Netting
Navigation: Receivable Manager --> Setup --> Receipts --> Receipts Class.
Query AP/AR Netting and then click on Bank Accounts and assign the Netting bank
account.

Receivables System Options


Check the Allow payment of unrelated transactionscheck box under the Receivables
system options, if you
want to create netting agreements across multiple unrelated customers.
Navigation: Receivable Manager --> Setup --> System --> System Options.

Netting batch approver


If approval is required for a netting agreement, the approver must be set up as a contact
for the trading
partner (Customer / Supplier). The contact must be setup with an email address.
Chargeable Subcontracting
Navigation: System administrator --> Profile --> Systems
When the Profile option Chargeable Subcontracting Enabled is set to:
Yes This will select invoices that were matched to purchase orders with outsourced
assemblies by the
netting process.
No This will select invoices that were matched to purchase orders without outsourced
assemblies by the
netting process.
D (disregard) This means all eligible invoices will be selected for netting irrespective of

whether or not they


are matched to purchase orders.
Netting Agreement
Create netting agreement to setup the rules that will decide which transactions are
selected for netting and
how they are ordered and processed once selected.
Navigation: Receivable Manager --> Receipts --> Netting --> Netting Agreement.
Click on Create Agreement.

Enter the information

click on Next.
Enter Supplier Name and Customer Name

Click on Next and then Finsh.


Define and Assign Document Sequential Numbering.
Define Sequential Numbering:
Navigation: System Administrator --> Application --> Sequential Numbering --> Define.

Assign Document Sequential to categories:


Navigation: System Administrator --> Application --> Sequential Numbering -->Assign
Document Tab:

Assignment Tab:

Criteria used for Selecting AP Invoices:


Transaction due date must be less than or equal to AP scheduled payment due date.

AP scheduled payment due date must be between the Netting Agreement Start Date
and End Date.
Only invoices for the Supplier and supplier sites (if specified) in the agreement are
selected.
Only invoices with the selected invoice types in the agreement are included.
Operating unit of the invoices must be the same as the operating unit of the batch.
Invoices must be approved
Invoices must not be on Hold
Invoices that have already been included in a batch that is not yet in status Complete
are not included.
Locking AP invoices:
o Selected AP invoices are locked by populating AP_PAYMENT_SCHEDULES.Checkrun_id
Column
for the selected invoices
o The same Checkrun_id value is populated in FUN_NET_BATCHES.Checkrun_Id for the
given batch
Criteria used for Selecting AR Transactions:
AR Payment Schedule due date must be less than or equal to transaction date
mentioned in Netting.
AR payment schedule date should be between the Agreement Start Date and end date.
Transactions must be complete
Only Transactions for customer and customer sites (if specified) in the agreement are
selected.
Only transactions with the selected transaction types in the agreement are included.
Operating unit of the transactions must be the same as the operating unit of the batch.

The Receipt method associated with the transaction should not have a
Payment_type_code = CREDIT_CARD
Transaction must not be in dispute
Payment schedule status must be open
Transaction must not be a prepayment (RA_CUSTOMER_TRX.PREPAYMENT_FLAG =
N)

Criteria used for ordering the transactions:


Invoices and transactions are first ordered by Supplier and Customer priority associated
in the agreement.
They are then ordered by Netting order rule selected in the agreement.
The priority is important as this determines which transaction/invoice will be netted
first.

What happens when we submit a Netting Batch?


The following validations are performed when a netting batch is submitted, as there might
be a time lag between when the batch is created and when the batch is submitted. It is also
possible that the batch may have been modified.
If the current date has passed the batch settlement date, then the batch is set to status
SUSPENDED and the AP invoices are unlocked.
AP and AR balances for transactions are validated again. If the validation fails then the
batch is set to
status ERROR and the AP invoices are unlocked.
If the batch has passed all validations, it is sent for approval, if approval is required, else
the settle Netting
batch process is initiated.
How Netting Batches are settled?
Validation
o The process starts off with the validation of AR transactions. This is necessary as the AR
transactions are not locked when the netting batch is created and therefore there is a
possibility that the AR transaction may have been modified since it was included in the
netting batch
o If any validations fail, the batch is set to Cancelled Status.
o Validations are also performed to check whether the GL, AR, and AP periods are open
for the batch
settlement date. If not, then the batch is set to status ERROR and an error message is
displayed in the
Report log.

Derive Netting Bank Details


o Netting bank details like bank account name, bank account owner and number are
derived based on the
FUN_AGREEMENTS.bank_account_id for the given batch.

Settle AP invoices
o Invoices in each batch are grouped by vendor, vendor site and invoice currency code.
o AP payment APIs are called to process the payments. These APIs return the check id
which is
updated in FUN_NET_AP_INVS_ALL.Check_ID
Settle AR transactions
o AR receipt APIs are called to create and apply the receipts. These APIs return the
receipt id which is
updated in FUN_NET_AR_TXNS.RECEIPT_ID
o If all processing goes through successfully then the batch is set to COMPLETE and the
AP invoices and
netting agreements are unlocked.
What are various Netting Batch Statuses?
Netting Batch Status
RUNNING
SELECTED
ERROR
SUSPENDED
CLEARING
SUBMITTED
REJECTED
APPROVED
COMPLETE
REVERSING
REVERSED

Event
User creates the netting batch
Review Batch option is set to YES
Error encountered while validating or selecting transactions
Current date has gone passed the batch settlement date
Review batch option is set to NO but no approval is required.
Review batch option is set to NO and approval is required.
Batch has been reversed
User approves batch requiring approval
Netting process completed for transactions
User chooses to reverse the batch
Batch has been reversed